Medical Loss Ratio Rebates for Small Business Owners

Published on December 18, 2019

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The Medical Loss Ratio (MLR) is a part of the Affordable
Care Act (ACA) that requires health insurers to spend at least 80 percent of
the premiums they collect on member medical care. When insurers do not meet the
Medical Loss Ratio, they are required by the ACA to refund the difference to
individual and small business policyholders in the form of rebates.

What are the Medical Loss Ratio rebates for 2019?

In 2019, health insurers are having to return the largest sum of Medical Loss Ratio rebates since the ACA became law. According to the Kaiser Family Foundation (KFF), insurers are estimated to issue a total of $1.3 billion in rebates across all markets in 2019, including $743 million in the individual health insurance market and $312 million in the small business health insurance market.

However, it is important to note that Medical Loss Ratio
rebates are not guaranteed. If your
health plan is eligible for a MLR reimbursement this year, then insurers have
until September 30 to start sending out rebates to consumers in both the
individual and small business markets.

How do Medical Loss
Ratio rebates impact small business owners?

Some small business owners may receive rebates this year as
a result of the Medical Loss Ratio. While rebates may be paid in the form of a
premium credit, most reimbursements will likely be sent in the form of a check
payment, according to KFF.

For most small business health insurance plans, the cost of monthly premiums is shared by both the employer and employees. In employer-sponsored health plans, the rebate is made to the employer. This may create confusion for small business owners if they receive Medical Loss Ratio rebates in the form of a check payment: how are small businesses supposed to distribute the reimbursement?

Refund distribution may vary depending on the group health
plan’s contractual specifications.

If MLR rebates are minimal ($5 for individual health plans and $20 for group health plans), insurers are not obligated to process the rebates due to the administrative effort required.

For more substantial rebates, the way employers disburse Medical Loss Ratio rebates is based on who paid for the group health insurance coverage. According to the U.S. Department of Labor, if employees and their employer each paid for a specific percentage of premium costs, then a percentage of the rebate equal to the percentage of the cost that participants paid would be attributable to participant contributions.

Therefore, the way that Medical Loss Ratio rebates affect
small business owners will typically depend on the plan requirements, as well
as the percentage of costs shared between the employer and employees.

What are the ways
that small business owners can distribute MLR rebates?

There are several options available for small business
owners who are not sure how to distribute Medical Loss Ratio rebates to their
employees or workforce:

In most situations, the small business employer
can pass the MLR rebates to employees by evenly dividing the refund as a cash
payment across all workers currently enrolled in the plan.

A small business can also choose to use the
rebates as a future premium credit in order to reduce employees’ contributions to
the group health plan’s premiums.

Employers may additionally consider applying the
employees’ portion of the MLR rebates to improving their workforce’s health
insurance benefits in a particular way.

Overall, giving MLR rebates directly to employees may be the most straightforward way to handle the refund, while using the rebates as a future premium credit could also be a popular option among workers. To learn more about the tax implications of MLR refund distribution options, read the IRS page on frequently asked questions about MLR rebates. As an employer, be sure to talk with your employees to find out what their reimbursement preferences may be.

Whether or not your small business receives a rebate this year, it may be worthwhile to review your group health insurance plan to determine if the policy still meets your company’s needs and budget. If you decide to consider other options, you can shop for small business health insurance plans through eHealth to find affordable, quality health coverage for yourself and your employees.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.